Which are the top debt free smallcap stocks in India right now?
As per Equitymaster's Stock Screener, these are the debt free smallcap stocks in India -
These smallcap companies do not have any debt on their books as per the most recent financial year.
Companies with low or zero debt stand a better chance at surviving than those with high debt.
However, if managed well, debt could help companies meet some of its expenditure. This is true to a certain extent for companies operating in capital-intensive sectors.
What are smallcap stocks?
According to the market regulator, smallcap stocks are companies which rank 251st and beyond in terms of their market capitalisation.
Investing in them is perceived to be risky. However, the potential for higher returns makes them an appealing investment avenue.
What is debt to equity ratio and why is it important?
The debt-to-equity (D/E) ratio is the total value of debt, or total liabilities, divided by the total value of equity.
Debt to Equity Ratio = (total liabilities / total equity)
The ratio is an important financial metric as it highlights how a company's capital structure is tilted, either toward debt or equity financing.
How should you screen smallcap stocks?
Investing in smallcap stocks can be a tall order because they are less proven, and so are rife with speculative investment due to lack of data and operation history.
If you're looking to invest in the smallcap space, this is how you should screen for the best smallcap stocks.
Why do investors have a preference for debt free smallcap stocks?
Investing in debt-free stocks is considered a good idea as these companies have a greater chance to survive and grow in the long term
This is even more important when it comes to smallcaps.
Smallcap stocks with zero debt usually have strong cash flows and thus have considerable flexibility in how they use the cash in their business.
How much should one invest in debt free smallcap stocks?
According to us, in a scenario of ideal allocation of funds, small cap stocks should not comprise more than 10% of one's total equity portfolio.
Further, we believe that a single small cap stock should ideally not form more than 2-3% of the total portfolio.